16 - 09 - 2026

UPI Payments Above ₹2,000 to Attract 0.4% MDR From October 15

India’s Unified Payments Interface (UPI) ecosystem is set to introduce a Merchant Discount Rate (MDR) on select person-to-merchant transactions above ₹2,000 from October 15, 2026, marking a significant change to the commercial model underpinning the country’s rapidly expanding digital payments infrastructure.

Under the revised framework, merchants will pay an MDR of 0.4% on UPI P2M transactions above ₹2,000. For transactions of ₹75,000 and above, the charge will be capped at ₹300 per transaction. The framework was notified by the National Payments Corporation of India (NPCI) on September 15 and is scheduled to take effect on October 15.

The FAQ issued on the framework emphasises that the charge is imposed on the merchant side rather than directly on consumers. UPI payments made by individuals will continue to be free, while person-to-person transactions will remain outside the MDR framework.

The move comes as UPI operates at an unprecedented scale. According to the FAQ, the platform processed 2,451 crore transactions worth ₹29.9 lakh crore in August 2026 alone. The document argues that operating infrastructure at this scale requires sustained investment in servers, telecommunications, cybersecurity, fraud prevention and banking technology.

The proposed MDR is intended to create a more commercially sustainable funding model for the payments ecosystem. Further, revenue from the charge will be distributed within the UPI ecosystem to support infrastructure resilience, innovation, cybersecurity and customer service.

Small-value payments and micro-merchants remain protected

The framework leaves the vast majority of everyday low-value UPI payments untouched. Transactions of up to ₹2,000 remain free, and the FAQ states that these account for more than 95% of UPI P2M transaction volume.

Small merchants operating under the Person-to-Person Merchant (P2PM) category will also continue to receive zero-MDR treatment. The framework defines these micro-merchants as small vendors receiving up to ₹1 lakh a month through UPI QR codes directly into their accounts.

Importantly, receiving an individual payment above ₹2,000 will not automatically make an eligible P2PM merchant liable for MDR. Applicability depends on the merchant’s overall account classification. Merchants whose UPI receipts exceed ₹1 lakh a month for three consecutive months are to be transitioned into the P2M category.

The framework also proposes a dedicated fund aimed at expanding digital-payment infrastructure and merchant onboarding in Tier-3 to Tier-6 centres, including the Northeast, Jammu and Kashmir and Ladakh. The fund is also intended to support notified government schemes and encourage UPI adoption among smaller businesses.

Special rates for selected sectors

Not all transactions above ₹2,000 will attract the standard 0.4% rate. The framework provides a flat ₹5 MDR for specified categories, including railways, telecom services, insurance and fuel. Utility payments such as electricity, water and piped natural gas are also covered by the designated industry programme provisions.

Capital-market transactions have a separate structure. Payments involving mutual funds, securities, stockbrokers and dealers will attract an MDR of 0.02%, subject to a maximum cap of ₹300.

Credit-linked UPI transactions, including RuPay credit cards linked to UPI and certain bank credit lines, will continue to operate under separate credit-product rules and are outside the direct account-to-account UPI MDR framework described in the FAQ.

Merchants cannot pass the charge to customers

The framework explicitly states that merchants cannot pass the MDR on to consumers. Customers are therefore expected to continue paying the listed price when making purchases through UPI.

For example, a ₹3,000 eligible transaction would generate an MDR of ₹12, while a ₹50,000 transaction would attract ₹200. For a ₹1 lakh transaction, the percentage calculation would ordinarily produce ₹400, but the ₹300 ceiling would apply instead.

The Ministry of Finance has also advised banks to ensure that merchants do not pass the newly introduced charge on to customers.

The introduction of MDR marks a shift from the long-standing zero-MDR model for UPI merchant payments towards a threshold-based commercial structure. The stated objective is to generate a more predictable source of funding for the infrastructure supporting UPI while protecting low-value payments and small merchants.

With the new framework scheduled to take effect on October 15, banks, payment aggregators, fintech companies and merchant-facing platforms now have a limited transition period to update their billing and technology systems.

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